Rics want a 5% annual price rise cap

Rics want a 5% annual price rise cap

10:01 AM, 13th September 2013, About 11 years ago 13

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The Royal Institution of Chartered Surveyors (Rics) want a 5% annual price rise cap for houses that triggers restrictions on mortgage  income multipliers or maximum Loan to Value.

Although Rics did say that sellers  under their plans would not face a limit on how much they could sell their homes for.

Joshua Miller, senior economist at Rics, wants to halt a debt-fuelled house price advance and said “the Bank of England now has the ability to take the froth out of future housing market booms, without having to resort to interest rate increases. Capping price growth at, say, 5% is one way of doing this.”

“This cap would send a clear and simple statement to the public and the banking sector, managing expectations as to how much future house prices are going to rise. We believe firmly anchored house price expectations would limit excessive risk taking and, as a result, limit an unsustainable rise in debt.”

Sir Howard Davies,  a former deputy governor of the Bank, does not think this kind of cap would work and said “The problem is that we are not building enough homes.”

This is a good point as it is clearly the lack of supply that is pushing up house prices especially in the capital rather than increased demand because we are all better off now than before the recession started.

Then there is the question of regional differences. Do you smother any potential housing market recovery in areas outside London that have not seen the same rises and if not how do you tell an National high street bank to have different criteria and systems in different parts of the country.

This would be clearly unrealistic, unworkable and unpalatable for lenders.

The Housing Market is very mature and almost free to work on the pure economic principles of prices being dictated by supply and demand. It is therefore very difficult to control directly without looking at all the factors that influence it.

Rics may be naive in thinking simplistic one sided controls like this are the answer to the problems of a very complex housing market and its demographic and social issues.Rics


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Ryan Stone

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20:34 PM, 13th September 2013, About 11 years ago

Reply to the comment left by "Peter Jones" at "13/09/2013 - 12:54":

Peter, in the time it took you to write that post you probably could have read the report! I suggest you do, it might answer some/all of your questions...

Ian Ringrose

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11:10 AM, 14th September 2013, About 11 years ago

Due to the way capital controls work on banks, at present we have a system when the banks are allowed to lend more when prices go up, but have their allowed lending restricted when prices go down.

So when prices start to go up, banks then bring out a lot more 90% LTV deals, but these deals are removed as soon as prices start to go down.

This is the wrong way round if we want stable markets!!

Move With Us

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10:14 AM, 16th September 2013, About 11 years ago

Robin King, director at Move with Us, the residential property group, comments on the recent report from RICS about capping house price inflation. Robin says responsible lending is the way to curb excessive house price inflation - not imposing inflation caps:

“To avoid artificial house price inflation, lenders should adhere to stringent lending criteria, stick to the basics and look at the experience of the borrower. If lenders are restricted to lending three and a half times a borrower’s earnings, for example, property price inflation will only be driven by wage inflation.

"Housing bubbles are created by irresponsible lending practices. Historically, property prices have risen and in order to sustain them, borrowers demanded more money to buy properties with, so they were lent more money against their income. We’ve seen this happen under different guises such as self-certified mortgages, which required no background checks to qualify repayments and inflated house prices, and also in deferred interest rate mortgages in the 80s.
"Lenders could also carry out different background checks on top of assessing credit records to ensure reponsible lending. Borrowers that have a history of making regular rental repayments, for example, tend to be more reliable as their lifestyle is naturally tailored to making regular mortgage repayments.”

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